Chapter 4

Partnership – Part 4

PROBLEM 4-1: TRUE OR FALSE

1. FALSE - ₱3 - ₱1 liabilities = ₱2
2. TRUE
3. TRUE
4. TRUE
5. TRUE
6. TRUE
7. TRUE
8. FALSE - ₱2 net proceeds (squeeze) - ₱5 carrying amount = (₱3 loss)
9. TRUE
10. FALSE - ₱6 - ₱1 liabilities = ₱5 available to partners x 50% = ₱2.5
11. TRUE
12. FALSE - ₱3

PROBLEM 4-2: THEORY

1
B
.
2
A
.
3
C
.
4
A
.
5
A
.

PROBLEM 4-3: THEORY & COMPUTATIONAL

1. D

2. D

3. Solutions:

Case #1: Lump-sum liquidation

Net cash proceeds 50,000

(80,000
Carrying amount of non-cash assets
)
(30,000
Total loss on sale
)

1
 A B
  Totals
(80%) (20%)
Capital balances before liquidation 20,000 18,000 38,000
Loans payable to partners 10,000 17,000 27,000
Total 30,000 35,000 65,000
Allocation of loss (30,000
(24,000) (6,000)
(-30K x 80%); (-30K x 20%) )
Amounts received by the partners 6,000 29,000 35,000

Checking:
Available cash (from sale) 50,000
Outside creditors (15,000)
Available cash for distribution to partners 35,000

Case #2: Installment liquidation

Net cash proceeds - first sale 45,000

(80,000
Carrying amount of all non-cash assets
)
(35,000
Loss
)

A B
  Totals
(80%) (20%)
Capital balances before liquidation 20,000 18,000 38,000
Loans payable to partners 10,000 17,000 27,000
Total 30,000 35,000 65,000
Allocation of loss (35,000
(28,000) (7,000)
(-35K x 80%); (-35K x 20%) )
Amounts received by the partners - 1st
2,000 28,000 30,000
sale

Checking:
Available cash (from 1st sale) 45,000
Outside creditors (15,000)
Available cash for distribution to partners 30,000

2
Case #3: Installment liquidation

Net cash proceeds - first sale 15,000

(80,000
Carrying amount of all non-cash assets
)
(65,000
Loss
)

A B
  Totals
(80%) (20%)
Capital balances before liquidation 30,000 (28,000) 2,000
Loans payable to partners 20,000 10,000 30,000
Total 50,000 (18,000) 32,000
Allocation of loss
(52,000) (13,000) (65,000)
(-65K x 80%); (-65K x 20%)
Amounts received by the partners - 1st (31,000
(2,000) (33,000)
sale )

Answer: The partners receive nothing from the 1st sale.

Checking:
Available cash (from sale) 15,000
Outside creditors (15,000)
Available cash for distribution to partners -

4. Solutions:

Case #1: Lump-sum liquidation

Collection from accounts receivable (60K x 70%) 42,000

Sale of inventory 20,000
Sale of equipment 310,000
(12,000
Liquidation costs )
Net proceeds 360,000
Carrying amt. of all non-cash assets,
except Receivable from A (60K + 120K +290K) (470,000)
(110,000
Loss )

A B
  Totals
(60%) (40%)
Capital balances before liquidation 250,000 200,000 450,000
Payable to (Receivable from) partners (10,000) 20,000 10,000

3
Total 240,000 220,000 460,000
Allocation of loss
(110,000
(-110K x 60%); (-110K x 40%) (66,000) (44,000)
)
Amounts received by the partners 174,000 176,000 350,000

Checking:
Available cash (20K on hand + 360K from sale) 380,000

Outside creditors (30,000)

Available cash for distribution to partners 350,000

Case #2: Lump-sum liquidation

Collection from accounts receivable (60K x 1/2) 30,000

Sale of inventory 20,000
Liquidation expenses (12,000)
Estimated liquidation costs (5,000)
Net proceeds 33,000
Carrying amt. of all non-cash assets, except Receivable
from A (470,000)
Loss (437,000)

A
  B (40%) Totals
(60%)
Capital balances before liquidation 250,000 200,000 450,000
Payable to (Receivable from) partners (10,000) 20,000 10,000
Total 240,000 220,000 460,000
Allocation of loss (262,200 (174,800 (437,000
(-437K x 60%); (-437K x 40%) ) ) )
Total (22,200) 45,200 23,000
Allocation of deficiency to other
-
partner 22,200 (22,200)
Amount received by partners - 23,000 23,000

Checking:
Available cash (20K on hand + 33K from sale, net) 53,000

Outside creditors (30,000)

Available cash for distribution to partners 23,000

4
5
PROBLEM 4-4: MULTIPLE CHOICE – COMPUTATIONAL
1. D (348K + 232K) = 580K ÷ 80% = 725K capital after admission x
20% = 145,000

2. B
Solution:
The total loss on the sale is computed as follows:
Sale of other assets 500,000
(625,000
Carrying amount of other assets )
(125,000
Total loss on sale )

The partial settlement to partners is computed as follows:

  Alpha Beda Totals
Capital balances before
liquidation 348,000 232,000 580,000
Receivable from Beda (20,000) (20,000)
Total 348,000 212,000 560,000
Allocation of loss
[125K x (60% & 40%)] (75,000) (50,000) (125,000)
Amounts received by the
partners 273,000 162,000 435,000

3. A
Solution:
The total loss on the sale is computed as follows:
Sale of other assets 385,000
(450,000
Carrying amount of other assets )
Total loss on sale (65,000)
The partial settlement to partners is computed as follows:
  Smith Jones Totals
Capital balances before
liquidation 195,000 155,000 350,000
Receivable from Beda (20,000) - (20,000)
Total 175,000 155,000 330,000
Allocation of loss
[65K x (60% & 40%)] (39,000) (26,000) (65,000)
Amounts received by the
partners 136,000 129,000 265,000

4. A
Solution:
The total loss on the sale is computed as follows:
Sale of other assets 120,000
Carrying amount of all other assets (250,000

6
 )
(130,000
Total loss on sale )

The partial settlement to partners is computed as follows:

  Cobb Davis Eddy Totals
Capital balances 80,000 90,000 70,000 240,000
Allocation of loss
[130K x (50%; 30% & 20%)] (65,000) (39,000) (26,000) (130,000)
Amounts received 15,000 51,000 44,000 110,000

5. B
Solution:

The loss is determined as follows:

= +
  A L E

Given information 0 = 30,000 + 570,000

Loss (squeeze) (600,000)

Adjusted
balances 0 = 30,000 + (30,000)

  A (30%) B (20%) C (50%) Totals

Cap. bal. - unadjusted 210,000 150,000 210,000 570,000
Allocation of loss:
-600K x 30%; x 20%; x (180,000) (120,000) (300,000) (600,000)
50%
Total 30,000 30,000 (90,000) (30,000)
Allocation of deficiency
(-90K x 3/5); (-90K x 2/5) (54,000) (36,000) 90,000 -
Total (24,000) (6,000) - (30,000)
Additional
contributions 24,000 6,000 - 30,000
Total - - - -

Allocation of loss (180,000)

Allocation of deficiency (54,000)
Decrease in A's capital balance (234,000)

7
6. A (Refer to solution above)

7. B (equal to carrying amount of partner’s claim)

8. A
Solution:

+
  A = L E
not equal to
Given information 500,000 200,000 + 490,000
Loss (squeeze) (190,000)
Adjusted
balances 500,000 = 200,000 + 300,000

Jack Beans
  Totals
(30%) (70%)
Capital balances – unadjusted 300,000 190,000 490,000
(190,000
Allocation of loss (57,000) (133,000)
)
Total 243,000 57,000 300,000

9. D
Solution:

+
  A = L E
not equal to
Given information 120,000 - + 490,000
Loss (squeeze) (370,000)
Adjusted
balances 120,000 = - + 120,000

Jack Beans
  Totals
(30%) (70%)
Capital balances – unadjusted 300,000 190,000 490,000
(370,000
Allocation of loss (111,000) (259,000)
)
Total 189,000 (69,000) 120,000

10. A
Solution:
Beans
   
(70%)
Capital balances – unadjusted 190,000
(squeeze
Allocation of loss (91,000)
)

8
Total 99,000 (start)

Total loss = (91,000) ÷ 70% = (130,000)

  Jack (30%)
Capital balances – unadjusted 300,000
Allocation of loss (-130K x
(39,000)
30%)
Total 261,000

11. A
Solution:
  Jack (30%)  
Capital balances – unadjusted 300,000
(squeeze
Allocation of loss (39,000)
)
Total 261,000 (start)

Total loss = (39,000) ÷ 30% = (130,000)

  Beans (70%)
Capital balances – unadjusted 190,000
Allocation of loss (-130K x
(91,000)
70%)
Total 99,000

Amount received by Jack 261,000

Amount received by Beans 99,000

Settlement of liabilities 200,000

Net proceeds from sale 560,000

12. B
Solution:
A B C
  Totals
(50%) (25%) (25%)
Cap. bal. before liquidation 76,000 64,000 56,000 196,000
(156,000
Allocation of loss (78,000) (39,000) (39,000)
)
Total (2,000) 25,000 17,000 40,000

9
Allocation of deficiency 2,000 (1,000) (1,000) -
Total - 24,000 16,000

13. C
Solution:
Net proceeds 320,000
Carrying amount of all other
assets (720,000)
(400,000
Loss )

A C
  B (30%) Totals
(50%) (20%)
Cap. bal. before liquidation 250,000 86,000 40,000 376,000
Payable to partners 64,000 20,000 84,000
Total 250,000 150,000 60,000 460,000
(200,000 (120,000 (400,000
Allocation of loss (80,000)
) ) )
(20,000
Total 50,000 30,000 520,000
)
Additional contribution 20,000 20,000
Total 50,000 30,000 - 540,000

14. C
Solution:
  A B C
240,00 180,00
Personal assets 90,000 0 0
(75,000 (150,000 (216,000
Personal liabilities ) ) )

Net free assets 15,000 90,000 (36,000)

15. A (100,000 x 40%) = 40,000

PROBLEM 4-5: EXERCISES – COMPUTATIONAL

1. Solution:
Net cash proceeds 32,000
(40,000
Carrying amount of non-cash assets
)
(8,000
Total loss on sale
)

10
 A B
  Totals
(50%) (50%)
Capital balances before liquidation 20,000 15,000 35,000
Allocation of loss (-8K x 50%); (-8K x
(4,000) (4,000) (8,000)
50%)
Amounts received by the partners 16,000 11,000 27,000

2. Solution:

32,00
Net cash proceeds
0
(120,000
Carrying amount of non-cash assets
)
(88,00
Total loss on sale
0)

A B
  Totals
(50%) (50%)
105,00
Capital balances before liquidation 60,000 45,000
0
Allocation of loss (88,000
(44,000) (44,000)
(-88K x 50%); (-88K x 50%) )
Amounts received by the partners 16,000 1,000 17,000

3. Solution:
Net proceeds 300,000
Carrying amt. of other assets (450,000)
Loss (150,000)

  A (40%) B (30%) C (30%) Totals

Capital balances
60,000 270,000 45,000 375,000
before liquidation
Allocation of loss (60,000) (45,000) (45,000) (150,000)
Amounts received by
- 225,000 - 225,000
the partners

4. Solutions:

Case #1: Lump-sum liquidation

Net cash proceeds (50,000 – 5,000) 45,000

(80,000
Carrying amount of non-cash assets
)

11
 (35,000
Total loss on sale
)

A B
  Totals
(80%) (20%)
Capital balances before liquidation 36,000 22,000 58,000
Loans payable to partners 10,000 17,000 27,000
Total 46,000 39,000 85,000
Allocation of loss (35,000
(28,000) (7,000)
(-35K x 80%); (-35K x 20%) )
Amounts received by the partners 18,000 32,000 50,000

Checking:
Available cash (on hand + from sale, net) 20K + 45K 65,000
Outside creditors (15,000)
Available cash for distribution to partners 50,000

Case #2: Installment liquidation

Net cash proceeds - first sale (45K – 5K) 40,000

(80,000
Carrying amount of all non-cash assets
)
(40,000
Loss
)

A B Total
 
(80%) (20%) s
Capital balances before liquidation 36,000 22,000 58,000
Loans payable to partners 10,000 17,000 27,000
Total 46,000 39,000 85,000
Allocation of loss
(32,000) (8,000) (40,000)
(-40K x 80%); (-40K x 20%)
Amounts received by the partners - 1st
14,000 31,000 45,000
sale

Checking:
Available cash (on hand + from 1st sale, net) 20K + 40K 60,000
Outside creditors (15,000)
Available cash for distribution to partners 45,000

5. Solutions:

Case #1: Lump-sum liquidation

12
 Collection from accounts receivable (60% x 180K) 108,000
Sale of inventory 50,000
Sale of equipment 310,000
Liquidation costs (10,000)
Net proceeds 458,000
Carrying amt. of all non-cash assets, (650,000
except Receivable from B (180K + 160K +310K) )
(192,000
Loss
)

A B
  Totals
(60%) (40%)
Capital balances before liquidation 240,000 190,000 430,000
Payable to (Receivable from) partners 20,000 (10,000) 10,000
Total 260,000 180,000 440,000
Allocation of loss (115,200 (192,000
(76,800)
(-192K x 60%); (-192K x 40%) ) )
Amount received by partners 144,800 103,200 248,000

Case #2: Lump-sum liquidation

Collection from accounts receivable (50% x 180K) 90,000

Sale of inventory 20,000
Sale of equipment 120,000
(10,000
Liquidation expenses
)
(5,000
Estimated liquidation costs
)
Net proceeds 215,000
Carrying amt. of all non-cash assets,
(650,000)
except Receivable from B (180K + 160K +310K)
(435,000
Loss
)

A
  B (40%) Totals
(60%)
Capital balances before liquidation 240,000 190,000 430,000
Payable to (Receivable from) partners 20,000 (10,000) 10,000
Total 260,000 180,000 440,000
Allocation of loss (261,000 (174,000 (435,000
(-192K x 60%); (-192K x 40%) ) ) )
Total (1,000) 6,000 5,000
Allocation of deficiency to other
partner 1,000 (1,000) -

13
Amount received by partners - 5,000 5,000

14